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The Sovereign Wealth Fund – Has Nigeria lost the chance to save for the future?

May 16, 2022

Adejoke Akinbode & Deborah Ununu

Nigeria’s Excess Crude Oil Account between 2015 & 2022

The Sovereign Wealth Fund comprises three distinct funds with specific investment and development objectives. Of the initial $1 billion, 85% of the funds were distributed to the three(3) parts; the Stabilization Fund was allocated an initial 20%, while 32.5% each went to the Future Generation and the Nigeria Infrastructure funds, and the remaining 15% remained unallocated and is to be assigned to any of the three funds as may be needed in the future.

Specifically, the Stabilisation Fund is meant to protect the country’s budget by providing a stable, last-resort source of finance during periods of fiscal deficit. Also, the Stabilisation Fund will ensure the smooth functioning of government and delivery of critical services during periods where revenues from petroleum sales are less than the level anticipated and approved by the National Assembly. Whereas the Future Generations Fund is intended to be used to build an inter-generational savings base by investing in long-term assets that generate returns to accumulate wealth for future generations of Nigerians. The Infrastructure Fund is expected to be used in bridging the nation’s infrastructure gap, which is estimated to require about $1.5 trillion over the next 10 years. Notably, 10% of the infrastructure fund is devoted to agriculture and regional government-sponsored development projects that will promote economic development in under-served sectors or regions in Nigeria.

While establishing the Sovereign Wealth Fund is a good initiative, not much can be said for its counterpart – the Excess Crude Account (ECA). The Excess Crude Account (ECA) is a fund established in 2004 by the Federal Government of Nigeria to stabilise the country’s economy and smoothen the impact of price volatility in oil exports. The ECA is funded by the difference between the market price of crude oil and the budgeted price of crude oil as contained in the government’s Appropriation Bill. Despite its good intentions, the ECA has been riddled with controversy, allegations of corruption, and uncertain performance, among other causes for concern.

The Sovereign Wealth Fund has the potential to diversify and stabilise the economy during the revenue shortfall, especially in this era where the most reliable source, the oil & gas sector, is gradually plummeting in value. One thing is justified; Nigeria has devised ways to reserve excess oil revenue for the rainy day but have we succeeded in retaining these reserves? 

In December 2018, the Excess Crude Account declined from  $2.319 billion to $631 million within 3 weeks; in February 2014, it stood at  $3.6 billion. As of August 2015, when President Muhammadu Buhari assumed office, it stood at $2.2 billion, which gradually declined as the years go by. In October 2021, it had reduced to a little over $60 million, and as of January 2022, the new balance stood at $35milion, falling from the $72.4 million recorded in May 2021.

While the withdrawals had a purpose, not all were in line with using the fund as an emergency means. In 2017, the National Economic Council (NEC) approved the withdrawal of $1 billion from the Excess Crude Account to fight insurgency (Boko Haram) in the NorthEast. While the need to curb insurgency in Nigeria cannot be overemphasised, technocrats and political counterparts opine that the $1 billion withdrawal was a ploy by the All Progressives Congress, APC – led Federal Government to fund President Muhammadu Buhari’s re-election in 2019. 

Despite the withdrawal, the country’s security situation has since declined into a worse state. Not only that, there is barely any evidence of the ammunition purchased with the funds as Nigerian Soldiers are constantly lamenting about the lack of arms and ammunition in a battle against insurgents. This is a severe cause for concern. There are several reasons why the Excess Crude Account has recorded so many unjustified withdrawals. Due to the lack of transparency on the unaccounted funds, speculations that these funds may have been used for election purposes is/may be justifiable.

Imagine if the funds were available, they would have been used to stabilise the economy when the pandemic struck and build infrastructures and fund alternative education institutions due to the lockdown. If the Federal Government had resisted the urge to withdraw these funds without proper accountability, it would have been useful for proactive measures during the economic meltdown. The administration withdrew from the Excess Crude Account and withdrew collectively from the Stabilization Fund to the citizens’ detriment.

This begs the question – when does this end?

Among other measures, the need for a functional framework that guides withdrawals from the Sovereign Wealth Fund and the Excess Crude Oil Account cannot be overemphasized. The government also needs to be deliberate about increasing fiscal savings through a higher accretion to the Sovereign Wealth Fund, which has investment objectives of diversification and improving long-term economic prospects.

Nigeria’s Excess Crude Oil Account under President Buhari – Jan 2021 to Jan 2022

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